UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------------
Commission file number 1-1483
------------------------------------------------------
WASHINGTON GAS LIGHT COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia and Virginia 53-0162882
- -------------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1100 H Street, N. W., Washington, D. C. 20080
- --------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(703) 750-4440
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
NONE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1.00 par value 46,364,502 April 30, 1999
- ---------------------------- ---------------- --------------
Class Number of Shares Date
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and September 30, 1998 2-3
Consolidated Statements of Income -
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Income -
Six Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-25
Item 3. Quantitative and Qualitative Disclosures About
Market Risks of the Company 26
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 26-27
Item 5. Other Information 27-28
Item 6. Exhibits and Reports on Form 8-K 28-29
Signature 29
</TABLE>
1
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
Mar. 31, Sept. 30,
1999 1998
----------- ---------
(Unaudited)
(Thousands)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
At original cost $2,059,520 $1,992,770
Accumulated depreciation and amortization (697,091) (673,269)
---------- ----------
1,362,429 1,319,501
---------- ----------
Current Assets
Cash and cash equivalents 13,622 17,876
Accounts receivable 176,987 92,178
Gas costs due from customers 11,804 9,921
Allowance for doubtful accounts (8,565) (9,078)
Accrued utility revenues 48,625 16,304
Materials and supplies--principally at
average cost 15,279 15,607
Storage gas--at cost (first-in, first-out) 13,260 76,338
Deferred income taxes 17,698 16,337
Other prepayments--principally taxes 12,041 13,864
Other 1,485 849
---------- ----------
302,236 250,196
---------- ----------
Deferred Charges and Other Assets
Regulatory assets--deferred purchased
gas costs - 3,550
Regulatory assets--other 89,238 91,802
Other 20,892 17,384
---------- ----------
110,130 112,736
---------- ----------
Total $1,774,795 $1,682,433
========== ==========
</TABLE>
________________________
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
Mar. 31, Sept. 30,
1999 1998
---------- ----------
(Unaudited)
(Thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 730,452 $ 607,755
Preferred stock 28,423 28,424
Long-term debt 453,093 428,641
---------- ----------
1,211,968 1,064,820
---------- ----------
Current Liabilities
Current maturities of long-term debt 47,020 64,106
Notes payable 16,605 124,943
Accounts and wages payable 135,104 116,770
Dividends declared 14,470 13,485
Customer deposits and advance payments 9,070 19,454
Accrued taxes and interest 54,975 9,200
Pipeline refunds due to customers 2,517 1,437
Gas costs due to customers 4,433 5,671
Other 300 1,146
---------- ----------
284,494 356,212
---------- ----------
Deferred Credits
Unamortized investment tax credits 20,035 20,493
Deferred income taxes 138,977 145,519
Regulatory liabilities--deferred purchased
gas costs 25,889 -
Other regulatory liabilities and other
deferred credits 93,432 95,389
---------- ----------
278,333 261,401
---------- ----------
Total $1,774,795 $1,682,433
========== ==========
</TABLE>
________________________
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
Mar. 31, Mar. 31,
1999 1998
--------- ---------
(Thousands, Except Per Share Data)
<S> <C> <C>
Operating Revenues $ 392,988 $ 390,221
Cost of Gas 195,817 210,003
--------- ---------
Net Revenues 197,171 180,218
--------- ---------
Other Operating Expenses
Operation 41,344 40,890
Maintenance 9,762 9,802
Depreciation and amortization 14,692 13,734
General taxes 21,722 23,894
Income taxes 36,999 30,197
--------- ---------
124,519 118,517
--------- ---------
Operating Income 72,652 61,701
Other Income - Net 1,369 1,498
--------- ---------
Income Before Interest Expense 74,021 63,199
--------- ---------
Interest Expense
Interest on long-term debt 8,674 8,196
Other 503 1,274
--------- ---------
9,177 9,470
--------- ---------
Net Income 64,844 53,729
Dividends on Preferred Stock 333 333
--------- ---------
Net Income Applicable to Common Stock $ 64,511 $ 53,396
========= =========
Average Common Shares Outstanding 46,293 43,628
========= =========
Earnings per Average Common Share - Basic $ 1.39 $ 1.22
========= =========
Earnings per Average Common Share - Diluted $ 1.39 $ 1.22
========= =========
Dividends Declared per Common Share $ 0.305 $ 0.300
========= =========
</TABLE>
________________________
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
Mar. 31, Mar. 31,
1999 1998
--------- --------
(Thousands, Except Per Share Data)
<S> <C> <C>
Operating Revenues $ 690,337 $ 757,768
Cost of Gas 354,736 422,049
--------- ---------
Net Revenues 335,601 335,719
--------- ---------
Other Operating Expenses
Operation 88,968 83,991
Maintenance 19,030 19,039
Depreciation and amortization 28,997 27,165
General taxes 38,328 43,663
Income taxes 52,122 52,458
--------- ---------
227,445 226,316
--------- ---------
Operating Income 108,156 109,403
Other Income - Net 761 1,611
--------- ---------
Income Before Interest Expense 108,917 111,014
--------- ---------
Interest Expense
Interest on long-term debt 17,435 16,188
Other 1,723 2,973
--------- ---------
19,158 19,161
--------- ---------
Net Income 89,759 91,853
Dividends on Preferred Stock 666 666
--------- ---------
Net Income Applicable to Common Stock $ 89,093 $ 91,187
========= =========
Average Common Shares Outstanding 45,584 43,645
========= =========
Earnings per Average Common Share - Basic $ 1.95 $ 2.09
========= =========
Earnings per Average Common Share - Diluted $ 1.95 $ 2.09
========= =========
Dividends Declared per Common Share $ 0.605 $ 0.595
========= =========
</TABLE>
________________________
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
Mar. 31, Mar. 31,
1999 1998
-------- --------
(Thousands)
<S> <C> <C>
Operating Activities
Net income $ 89,759 $ 91,853
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization a/ 32,117 29,856
Deferred income taxes - net (6,849) (4,946)
Amortization of investment tax credits (458) (470)
Allowance for funds used during construction (972) (378)
Loss from agreement to sell West Virginia assets
(Note 10) 3,300 -
Other noncash credits - net (216) (421)
--------- --------
116,681 115,494
Changes in assets and liabilities:
Accounts receivable and accrued utility revenues (117,643) (144,205)
Gas costs due from/to customers - net (3,121) 3,909
Storage gas 63,078 57,251
Other prepayments - principally taxes 1,823 1,283
Accounts and wages payable 17,350 14,738
Customer deposits and advance payments (10,384) (7,764)
Accrued taxes and interest 45,775 43,401
Pipeline refunds due to customers 1,080 (4,765)
Deferred purchased gas costs - net 29,439 24,411
Other - net (3,301) 3,663
--------- --------
Net Cash Provided by Operating Activities 140,777 107,416
--------- --------
Financing Activities
Common stock issued 61,241 -
Common stock repurchased - (2,340)
Long-term debt issued 27,196 72,000
Long-term debt retired (19,925) (23,733)
Premium on long-term debt retired - (493)
Debt issuance costs (Note 5) (2,258) (1,103)
Notes payable - net (108,338) (54,800)
Dividends on common and preferred stock (27,696) (26,425)
--------- --------
Net Cash Used in Financing Activities (69,780) (36,894)
--------- --------
Investing Activities
Capital expenditures (75,251) (67,354)
Sale of Venture Funds - 1,619
Payment for purchase of non-utility companies (net
of cash acquired) - (2,990)
--------- --------
Net Cash Used in Investing Activities (75,251) (68,725)
--------- --------
(Decrease) Increase in Cash and Cash Equivalents (4,254) 1,797
Cash and Cash Equivalents at Beginning of Period 17,876 9,708
--------- --------
Cash and Cash Equivalents at End of Period $ 13,622 $ 11,505
========= ========
Supplemental Disclosures of Cash Flow Information
Income taxes paid $ 14,347 $ 18,889
Interest paid $ 19,988 $ 19,156
</TABLE>
______________________
a/ Includes amounts charged to other accounts.
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. In the opinion of Washington Gas Light Company (the Company), the
accompanying Consolidated Financial Statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the results for such periods. Refer to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998.
2. Due to the seasonal nature of the Company's business, the results of
operations shown do not indicate the expected results for the fiscal year
ended September 30, 1999.
3. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Certain amounts in financial statements of prior years have been
reclassified to conform to the presentation of the current year.
5. Interest Rate Hedge
The Company has $39 million of 8-3/4% First Mortgage Bonds (FMBs) that can
be called by the Company, or put to the Company on July 1, 1999. On
September 2, 1998, in order to lock in the Treasury yield for an
anticipated $39 million Medium-Term Note (MTN) issuance, which will be used
to refund the FMBs, the Company entered into an agreement that reflects the
forward sale of $40 million of 10-year U.S. Treasury notes at a fixed price
to be paid on July 1, 1999. The Company accounts for this transaction as a
hedge of an anticipated transaction in accordance with Statement of
Financial Accounting Standards No. 80, "Accounting for Futures Contracts"
(SFAS No. 80). The Company will record any gain or loss associated with
this hedge as MTN debt issuance costs when the Company issues such debt and
will amortize the costs over the life of the MTNs. If the agreement is
terminated without completing the anticipated MTN issuance, any gain or
loss will be immediately recognized in earnings.
Debt Issuance
The Company issued $25 million of 10-year MTNs in October 1998 with a
coupon rate of 5.49%. In order to lock in the Treasury yield for this
issuance, in June 1998, the Company entered into an agreement that
reflected a forward sale of $24.9 million of 10-year U.S. Treasury notes at
a fixed price. The Company unwound its hedge position concurrent with the
issuance of the above mentioned $25 million of MTNs, recording debt
issuance costs of $2.1 million to be amortized over the life of the MTNs.
This accounting treatment was in accordance with SFAS No. 80. The effective
cost of the debt was 6.74%.
6. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities" (SFAS No. 133). This statement is
effective for fiscal years beginning after June 15, 1999, and the Company
must adopt it in the first quarter of fiscal year 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's
7
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(continued)
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
The Company is reviewing SFAS No. 133 and does not currently expect it to
materially impact its financial condition or results of operations.
7. In November 1998, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus related to EITF Issue No.
98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." This consensus requires that energy trading
contracts, as these are defined in the consensus, are presented at fair
value with periodic gains and losses included in earnings. The Company is
reviewing EITF Issue No. 98-10, which would be applicable to the Company in
its fiscal year 2000, and does not currently expect it to materially impact
the Company's financial condition or results of operations.
8. Basic and diluted earnings per share ("EPS") computations for the three and
six months ended March 31, 1999 and 1998 are shown below. Basic EPS is
computed by dividing net income applicable to common stock by the weighted
average number of common shares outstanding during the periods. Diluted EPS
assumes conversion of convertible preferred stock at the beginning of the
applicable period.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
--------------------------------
Per Share
Income Shares Amount
-------- ------ ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic EPS:
Net Income Applicable to Common Stock $64,511 46,293 $1.39
Effect of Dilutive Securities:
- -----------------------------
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on January 1, 1999 3 24
------- ------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $64,514 46,317 $1.39
======= ====== =====
</TABLE>
8
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(continued)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998
---------------------------------
Per Share
Income Shares Amount
------ ------ ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic EPS:
Net Income Applicable to Common Stock $53,396 43,628 $1.22
Effect of Dilutive Securities:
- -----------------------------
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on January 1, 1998 3 27
------- ------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $53,399 43,655 $1.22
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, 1999
---------------------------------
Per Share
Income Shares Amount
------ ------ ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic EPS:
Net Income Applicable to Common Stock $89,093 45,584 $1.95
Effect of Dilutive Securities:
- -----------------------------
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on October 1, 1998 6 24
------- ------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $89,099 45,608 $1.95
======= ====== =====
</TABLE>
9
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(continued)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, 1998
---------------------------------
Per Share
Income Shares Amount
------ ------ ---------
(Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic EPS:
Net Income Applicable to Common Stock $91,187 43,645 $2.09
Effect of Dilutive Securities:
- -----------------------------
$4.60 and $4.36 Convertible Preferred Stock,
Assuming Conversion on October 1, 1997 6 26
------- ------
Diluted EPS:
Net Income Applicable to Common Stock
Plus Assumed Conversions $91,193 43,671 $2.09
======= ====== =====
</TABLE>
9. On November 12, 1998, the Company publicly offered 2 million shares of
common stock at $25.0625 per share. On November 18, 1998, the underwriters
involved in the offering exercised their option to purchase an additional
300,000 shares from the Company at the same price per share. Net proceeds
from the sale amounted to $55.7 million, and are being used for general
corporate purposes, including capital expenditures and working capital
requirements.
10. On November 2, 1998, Shenandoah Gas Company (Shenandoah Gas), a wholly
owned subsidiary of the Company entered into an agreement to sell its
natural gas utility assets located in West Virginia. According to this
agreement, Shenandoah Gas will provide natural gas transportation service
through its pipeline system in Virginia to the purchaser to assure
continued natural gas service in the Eastern Panhandle of West Virginia.
Shenandoah Gas has approximately 3,600 customers in Martinsburg and
surrounding areas in Berkeley County, West Virginia. Shenandoah Gas will
continue to provide natural gas utility service to its approximately 10,000
customers in the northern Shenandoah Valley of Virginia.
In fiscal year 1998, Shenandoah Gas' natural gas therm deliveries in West
Virginia represented less than two percent of the Company's consolidated
natural gas therm deliveries and less than one percent of associated
consolidated revenues. Shenandoah Gas' West Virginia operations contributed
approximately $200,000 (0.3%) to the Company's fiscal year 1998 net income
applicable to common stock. This represents less than one-half of one cent
of basic and diluted earnings per average common share for fiscal year
1998. During the quarter ended December 31, 1998, the Company recorded a
non-recurring $3.3 million pre-tax loss ($2.1 million after-tax or $0.05
per average common share) related to this agreement to reflect the
anticipated loss at settlement.
10
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(continued)
The proposed transaction is subject to approval by the Public Service
Commission of West Virginia. The transportation service to be provided by
Shenandoah Gas to the purchaser is subject to approval by the Federal
Energy Regulatory Commission.
11. Stock-Based Compensation
At the Company's Annual Meeting of stockholders held on February 24, 1999,
stockholders approved the Company's 1999 Incentive Compensation Plan (1999
Plan) replacing the expiring Long-Term Incentive Compensation Plan (LTICP).
Similar to the LTICP, the 1999 Plan provides for the granting of shares of
common stock to officers and key employees of the Company and is designed
to promote the long-term success of the Company by recruiting and retaining
key employees. The 1999 Plan differs from the LTICP in that it enables the
Company to impose performance goals with respect to any award, thereby
requiring forfeiture of all or part of any award if such performance goals
are not met. The Company applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
interpretations in accounting for its stock-based compensation plans. The
maximum number of shares that may be issued under the 1999 Plan is
1,000,000 shares of common stock.
On March 31, 1999, the Company granted 99,465 of nonqualified stock options
and 45,702 of performance shares under the 1999 Plan. The stock options
vest three years after the date of the grant and expire on the tenth
anniversary of the grant date. Since the stock options were granted at the
fair market value of the Company's stock on the grant date, no compensation
expense will be recognized.
For the performance shares, 15,802 shares will vest after 18 months and for
29,900 shares, vesting occurs at the end of 30 months. At the end of the
vesting periods, the ultimate amount of performance shares issued to the
recipients will be adjusted upward or downward based on the Company's total
shareholder return relative to a selected peer company group. In accordance
with APB No. 25, the Company will recognize estimated compensation expense
ratably over the vesting periods of the performance shares.
11
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
This report may contain statements that are not based on historical facts
and thereby constitute forward-looking statements. Certain words, such as, but
not limited to, "estimates," "expects," "anticipates," "intends," "believes,"
and variations of these words, identify forward-looking statements that involve
uncertainties and risks. Although the Company believes such forward-looking
statements are based on reasonable assumptions, it cannot give assurance that
every objective will be reached. The Company makes such statements in reliance
on the safe harbor protections provided under the Private Securities Litigation
Reform Act of 1995.
As required by such Act, the Company hereby identifies the following
important factors, which are not intended to cover all events, that could cause
actual results to differ materially from any results projected, forecasted,
estimated or budgeted by the Company in forward-looking statements: (1) risks
and uncertainties impacting the Company as a whole, primarily related to changes
in general economic conditions in the United States; (2) changes in laws and
regulations to which the Company is subject, including tax, environmental and
employment laws and regulations; (3) the effect of fluctuations in weather from
normal levels; (4) variations in prices of natural gas and competing energy
sources; (5) the Company's ability to develop new markets and product and
service offerings as well as to maintain existing markets and the expenditures
required to develop and provide such products and services; (6) conditions of
the capital markets utilized by the Company to access capital to finance
operations and capital expenditures; (7) improvements in products or services
offered by competitors; (8) the cost and effects of legal and administrative
claims and proceedings against the Company or which may be brought against the
Company; (9) estimates of future costs or the effect on future operations as a
result of events that could result from the Year 2000 issue described further
herein; and (10) the impact of regulatory proceedings initiated by the Company
or other parties before the regulatory commissions that have jurisdiction over
the Company's retail rates.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1999 vs. MARCH 31, 1998
- ----------------------------------------------------
Earnings
- --------
For the quarter ended March 31, 1999, net income applicable to common stock
was $64.5 million, or $11.1 million higher than the results for the same period
last year. Basic and diluted earnings per average common share were $1.39, or
$0.17 higher than last year. Average common shares outstanding increased by 6.1%
from the prior year, primarily due to the public offering of 2.3 million shares
of common stock in the first quarter of the current year (See Note 9 to the
Consolidated Financial Statements) and common shares issued under the Dividend
Reinvestment and Common Stock Purchase Plan and the Employee Savings Plans. This
increase in average common shares outstanding in the current quarter reduced
earnings per share by $0.09 per average common share in this quarter. The
increase in net income applicable to common stock was directly attributable to
higher net revenues derived from a 13.9% increase in firm therms delivered. This
increase in firm therms delivered resulted from 14.6% colder weather in the
current quarter compared to last year and a 3.1% increase in customer meters.
Weather for the three months ended March 31, 1999 was 0.8% warmer than normal
while weather for the same period last year was 14.2% warmer than normal.
12
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Net Revenues
- ------------
Net revenues for the period increased by $17.0 million (9.4%) from the same
period last year to $197.2 million. The following table compares certain
operating statistics for the quarters ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
----------------------
Mar. 31, Mar. 31,
1999 1998
-------- --------
<S> <C> <C>
Gas Sales and Deliveries (thousands of therms)
Firm
Gas Sold and Delivered 440,918 419,008
Gas Delivered for Others 89,977 47,142
------- -------
530,895 466,150
------- -------
Interruptible
Gas Sold and Delivered 19,552 27,323
Gas Delivered for Others 95,704 76,663
------- -------
115,256 103,986
------- -------
Electric Generation
Gas Delivered for Others 16,290 11,439
------- -------
Total Deliveries 662,441 581,575
======= =======
Degree Days
Actual 2,121 1,851
Normal 2,138 2,157
Customer Meters (end of period) 847,670 821,956
</TABLE>
Gas Delivered to Firm Customers
- -------------------------------
The level of gas delivered to firm customers is highly sensitive to the
variability of weather since a large portion of the Company's deliveries of
natural gas is used for space heating. The Company's rates are based on normal
weather. The Company has no weather normalization tariff provision in any of its
jurisdictions. However, the Company has declining block rates in two of its
three major jurisdictions that reduce the impact on net revenues of deviations
in weather from normal.
13
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Under delivery service tariffs, certain firm customers are eligible to
acquire their gas supply from the Company (bundled gas service) or a third-party
supplier, such as unregulated marketers and unregulated subsidiaries of other
utility companies. The Company continues to serve all firm customers by
delivering gas through its distribution system (delivery service), which results
in the Company earning a regulated return on this service. Net revenues
generated from firm customers that do not acquire their gas supply from the
Company are equivalent on a per unit basis to those earned on bundled gas
service. Therefore, the Company does not experience any loss of margins from
customers that choose to purchase their gas from a third-party supplier.
Firm therm deliveries increased by 64.7 million therms (13.9%) in the
current quarter, primarily due to weather that was 14.6% colder than the same
quarter last year and the effect of a 3.1% increase in the number of customer
meters.
Gas Delivered to Interruptible Customers
- ----------------------------------------
Therms delivered to interruptible customers increased by 11.3 million
therms (10.8%) in the current quarter. The increase in volumes delivered
resulted primarily from the colder weather experienced during the current
quarter. The effect on net income of changes in delivered volumes and prices to
the interruptible class is minimized by margin-sharing arrangements that are
part of the design of the Company's rates. Under these arrangements, the Company
returns a majority of the margins earned on interruptible gas sales and
deliveries to firm customers after it reaches a gross margin threshold or in
exchange for the shifting of a portion of the fixed costs of providing service
from the interruptible to the firm class.
Gas Delivered for Electric Generation
- -------------------------------------
The Company has two customers with facilities in Maryland to which it sells
and/or delivers gas that is used to generate electricity. Volumes delivered for
electric generation in the current quarter increased by 4.9 million therms
(42.4%) over the same period last year, primarily due to increased usage by
these customers. The Company shares a significant majority of the margins earned
on deliveries of gas to these customers with firm customers and, therefore,
changes in volumes delivered between periods have an immaterial effect on net
revenues and net income.
Other Operating Expenses
- ------------------------
Operation and maintenance expenses increased by $414,000 (0.8%) from the
same period last year. This increase is primarily attributable to increased
advertising costs, partially offset by lower costs in the current year
associated with ongoing technology initiatives.
Depreciation and amortization increased by $958,000 (7.0%) primarily due to
the Company's increased investment in plant and equipment to meet customer
growth and to upgrade existing facilities.
General taxes declined by $2.2 million (9.1%) primarily due to a decrease
in gross receipts taxes caused by a decline in the tax rate in the District of
Columbia. The Company records the amounts collected from customers in revenue
and in general tax expense and, therefore, there is generally no effect on net
income.
14
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Income taxes, including amounts reflected in Other Income - Net, increased
by $7.6 million, primarily due to higher pre-tax income generated this quarter.
Other Income - Net
- ------------------
Other Income - Net declined by $129,000 primarily due to a $1.6 million
gain on the sale of certain investments in venture capital funds recorded in the
same period in the prior year, partially offset by higher earnings generated
from energy marketing activities in the current period.
Interest Expense
- ----------------
Total interest expense decreased by $293,000 (3.1%) from the same period
last year, reflecting the following changes:
Composition of the Changes in Interest Expense:
<TABLE>
<CAPTION>
Increase/(Decrease)
-------------------
(Thousands)
<S> <C>
Long-Term Debt $ 478
Short-Term Debt (467)
Other (304)
------
Total $ (293)
======
</TABLE>
Long-Term Debt - The increase in interest on long-term debt of $478,000 was
primarily due to a $36.9 million rise in the average amount of long-term debt
outstanding, partially offset by a decline of 0.15 percentage points in the
weighted-average cost of such debt.
Short-Term Debt - The decrease in interest on short-term debt of $467,000 was
due to a $26.7 million decline in the average amount of short-term debt
outstanding and a decrease of 0.69 percentage points in the weighted-average
cost of such debt.
Other - Other interest expense decreased by $304,000 in the current quarter
primarily reflecting an increase in the accrual for allowance for funds used
during construction.
SIX MONTHS ENDED MARCH 31, 1999 vs MARCH 31, 1998
- -------------------------------------------------
Earnings
- --------
For the six months ended March 31, 1999, net income applicable to common
stock totaled $89.1 million, or $2.1 million lower than the results for the same
period last year. Basic and diluted earnings per average common share were $1.95
compared to $2.09 per average common share last year. The decline in net income
applicable to common stock for the six-month period primarily resulted from a
non-recurring $2.1 million after-tax loss recorded in the first quarter ($0.05
per average common share) related to an agreement to sell the Shenandoah Gas
natural gas utility assets located in West Virginia (See Note 10 to the
Consolidated Financial Statements). In addition, earnings per average common
share decreased $0.09 primarily due to an increase
15
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
in the average common shares outstanding during the current six-month period.
The increase in average common shares outstanding resulted from the previously
mentioned common stock offering in the first quarter and common shares issued
under the Dividend Reinvestment and Common Stock Purchase Plan and the Employee
Savings Plans.
Net Revenues
- ------------
Net revenues for the period were $335.6 million, reflecting a small
decrease from the same period last year. The following table compares certain
operating statistics for the six months ended March 31, 1999 and 1998. Weather
for the six months ended March 31, 1999 was 4.8% warmer than normal while
weather for the same period last year was 4.4% warmer than normal.
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Gas Sales and Deliveries (thousands of therms)
Firm
Gas Sold and Delivered 733,014 774,418
Gas Delivered for Others 122,311 74,311
--------- ---------
855,325 848,729
--------- ---------
Interruptible
Gas Sold and Delivered 34,710 56,035
Gas Delivered for Others 170,774 149,473
--------- ---------
205,484 205,508
--------- ---------
Electric Generation
Gas Delivered for Others 29,743 27,971
--------- ---------
Total Deliveries 1,090,552 1,082,208
========= =========
Degree Days
Actual 3,345 3,377
Normal 3,514 3,533
Customer Meters (end of period) 847,670 821,956
</TABLE>
Gas Delivered to Firm Customers
- -------------------------------
Firm therm deliveries increased by 6.6 million therms (0.8%) in the current
period, primarily due to the colder weather in the second quarter of this year
(although for the full six-month period weather was warmer than last year) and
the effect of a 3.1% increase in the number of customer meters. However, a
decrease in gross receipts taxes included in operating revenues primarily offset
the effect that the increase in firm therms delivered had on net revenues.
Various taxing authorities levy these taxes on revenues. Therefore, such taxes
16
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
decrease with declines in revenues. The Company recovers the taxes from
customers and remits them to the various taxing authorities. The Company records
amounts of decreased gross receipts taxes in general tax expense and, therefore,
the decrease in net revenues associated with gross receipts taxes generally does
not affect net income. Revenues for the current six-month period decreased due
to a drop in the cost of gas billed to customers this year and the effect of
customers shifting from bundled gas service to delivery service. This shifting
can cause variations in gas revenues since the delivery service rate does not
include a cost of gas component.
Gas Delivered to Interruptible Customers
- ----------------------------------------
Therms delivered to interruptible customers declined only slightly in the
current six-month period. As previously described in this report, the effect on
net income of changes in gas deliveries to interruptible customers is minimal
due to margin-sharing arrangements in each of the Company's jurisdictions.
Gas Delivered for Electric Generation
- -------------------------------------
Volumes delivered for electric generation in the current six-month period
increased by 1.8 million therms (6.3%) over the same period last year, primarily
due to increased usage by these customers during the second quarter of fiscal
year 1999. Margins earned on such deliveries are being shared with firm
customers as described previously in this report.
Other Operating Expenses
- ------------------------
Operation and maintenance expenses increased by $5.0 million (4.8%) from
the same period last year. This increase is primarily attributable to: (1) the
previously-mentioned non-recurring loss ($3.3 million pre-tax) related to an
agreement to sell the Shenandoah Gas natural gas utility assets located in West
Virginia; (2) higher costs associated with technology initiatives; and (3)
increased advertising costs. Partially offsetting these increases are decreased
uncollectible accounts expenses reflecting lower revenues due to a drop in the
cost of gas this year, and lower labor costs.
Depreciation and amortization increased by $1.8 million (6.7%) primarily
due to the Company's increased investment in plant and equipment to meet
customer growth and to upgrade existing facilities.
General taxes declined by $5.3 million (12.2%) primarily due to a decrease
in gross receipts taxes, reflecting lower revenues caused by a drop in the cost
of gas this year and a rate reduction in the District of Columbia. The Company
records the amounts collected from customers in revenue and general tax expense,
and, therefore there is generally no effect on net income.
Income taxes, including amounts reflected in Other Income - Net, increased
slightly from the same period last year. The effective income tax rates were
36.99% and 36.41% for 1999 and 1998, respectively.
17
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Other Income - Net
- ------------------
Other Income - Net decreased by $850,000, primarily due to a $1.6 million
gain on the sale of certain investments in venture capital funds recorded in the
same period last year and higher miscellaneous general expenses. Higher earnings
generated from energy-related activities partially offset the effect of these
items.
The Company and its subsidiaries engage in energy-related activities that
include energy marketing, commercial energy services, consumer financing and
merchandising. The following table compares the financial results for each of
these activities for the six months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Net Income (Loss) Applicable to Energy-Related Activities
---------------------------------------------------------
Six Months Ended
--------------------------
Mar. 31, Mar. 31,
1999 1998
-------- --------
(Thousands)
<S> <C> <C>
Energy Marketing $ 648 $ (419)
Commercial Energy Services 504 40
Consumer Financing 627 452
Other, including merchandising 127 (99)
------ -------
Total $1,906 $ (26)
====== =======
</TABLE>
Energy Marketing
- ----------------
The Company's gas marketing subsidiary, Washington Gas Energy Services,
Inc. (WGES), sells natural gas in competition with unregulated marketers and
unregulated subsidiaries of other utility companies. WGES continues to gain
market share both inside and outside the Company's traditional service
territory. Higher earnings generated this year include the effect of customer
growth. The results of WGES for the six-month-ended periods are not indicative
of the anticipated fiscal year results. WGES made more sales in the current
period that are billed based on the volumes of gas delivered which is typically
greater in the colder winter months. In the prior year most revenue came from
annual fixed rate sales contracts which were matched with gas costs that may
vary seasonally. The quantity and pricing structure of these purchase contracts
are designed to match its sales commitments to effectively lock in a margin on
gas sales over the terms of existing sales contracts.
Commercial Energy Services
- --------------------------
The Company's commercial energy services include the design and renovation
of mechanical heating, ventilating and air conditioning systems. Positive
financial results generated from two subsidiaries purchased by the Company in
March 1998 were the primary reason for increased profits in the current six-
month period.
18
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Consumer Financing
- ------------------
Consumer financing, which includes the financing of gas appliances and
certain other equipment for residential and small commercial customers,
continues to show positive results.
Interest Expense
- ----------------
Total interest expense for the six months ended March 31, 1999 decreased
slightly from the same period last year, reflecting the following changes:
Composition of the Changes in Interest Expense:
<TABLE>
<CAPTION>
Increase/(Decrease)
-------------------
(Thousands)
<S> <C>
Long-Term Debt $ 1,247
Short-Term Debt (746)
Other (504)
-------
Total $ (3)
=======
</TABLE>
Long-Term Debt - The increase in interest on long-term debt of $1,247,000 was
primarily due to a $50.8 million rise in the average amount of long-term debt
outstanding, partially offset by a decline of 0.21 percentage points in the
weighted-average cost of such debt. The embedded cost of long-term debt at March
31, 1999 was 6.8%.
Short-Term Debt - The decrease in interest on short-term debt of $746,000 was
due to a $20.3 million decline in the average amount of short-term debt
outstanding and a decrease of 0.45 percentage points in the weighted-average
cost of such debt.
Other - Other interest expense decreased by $504,000 in the current period
primarily reflecting an increase in the accrual for allowance for funds used
during construction.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Short-Term Cash Requirements and Related Financing
- --------------------------------------------------
The Company's business is highly weather sensitive and seasonal.
Approximately 75% of the Company's therms delivered (excluding deliveries for
electric generation) occur in the first and second fiscal quarters. This weather
sensitivity causes short-term cash requirements to vary significantly during the
year. Cash requirements peak in the fall and winter months when accounts
receivable, accrued utility revenues and storage gas are at or near their
highest levels. After the winter heating season, these assets are converted into
cash and are used to liquidate short-term debt and acquire storage gas for the
subsequent heating season.
19
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
The Company uses short-term debt in the form of commercial paper and
short-term bank loans to fund seasonal requirements. Alternative sources include
unsecured lines of credit, some of which are seasonal, and $160 million in a
revolving credit agreement maintained with a group of banks. The Company can
activate these financing options to support or replace the Company's commercial
paper.
At March 31, 1999, the Company had notes payable outstanding of $16.6
million, as compared to $124.9 million at September 30, 1998. The decrease in
notes payable from September 30, 1998 reflects the seasonality of the Company's
cash requirements.
Long-Term Cash Requirements and Related Financing
- -------------------------------------------------
To fund construction expenditures and other capital requirements, the
Company draws upon both internal and external sources of cash. The Company's
ability to generate adequate cash internally depends upon a number of factors,
including the timing and amount of rate increases received and the level of
therm deliveries. The Company's last significant base rate increase became
effective in December 1994. The number of customer meters and the variability of
the weather significantly affect the level of therms delivered.
Cash Flow from
Operating Activities
Net cash provided by operating activities was $140.8 million during the
first six months of fiscal year 1999 or an improvement of $33.4 million from the
same period last year. The improvement is primarily due to lower funds
supporting accounts receivable reflecting decreased gas costs during the current
year.
Cash Flow from
Financing Activities
As more fully described in Note 9 to the Consolidated Financial Statements,
the Company in the first quarter of this year raised $55.7 million through the
sale of 2.3 million shares of common stock. Additionally, during the six months
ended March 31, 1999, the Company raised $5.5 million from shares issued through
the Dividend Reinvestment and Common Stock Purchase Plan and the Employee
Savings Plans.
During the six months ended March 31, 1999, the Company issued $27.2
million of long-term debt. Included in long-term debt issuances were $25 million
of Medium-Term Notes (MTNs) with a coupon rate of 5.49% along with construction
funding debt of approximately $1.8 million. The Company retired $15.2 million of
MTNs with coupon rates ranging from 7.08% to 7.97% and $4.0 million of 8-5/8%
Series First Mortgage Bonds.
Cash Flow from
Investing Activities
Capital expenditures for the first six months of fiscal year 1999 were
$75.3 million on a budget of $141.9 million for fiscal year 1999. Capital
expenditures in the first six months of fiscal year 1998 were $67.4 million.
Sales of Accounts Receivable
During the six months ended March 31, 1999, the Company sold, with
recourse, $15.5 million of non-utility accounts receivable, compared to $15.8
million in the six months ended March 31, 1998.
20
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
OTHER FACTORS AFFECTING THE COMPANY
- -----------------------------------
YEAR 2000
- ---------
The millennial change to the Year 2000 could affect the Company's software
programs and computing infrastructure that use two-digit years to define the
applicable year, rather than four-digit years. As such they may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in the
computer or device shutting down, performing incorrect computations or
performing inconsistently.
In 1996, the Company began a structured program to address Year 2000
issues. It has been implementing individual strategies targeted at the specific
nature of Year 2000 issues in each of the following areas: (1)
business-application systems including, but not limited to, the Company's
customer service, operations and financial systems and end-user applications;
(2) embedded systems, including equipment that operates such items as the
Company's storage and distribution system, meters, telecommunications, fleet and
buildings; (3) vendor and supplier relationships; (4) communications with
customers; (5) business continuity management planning; and (6) independent
verification and validation.
To implement this comprehensive Year 2000 program, the Company established
a Year 2000 Project Office, chaired by the Vice President and Chief Information
Officer who reports directly to the Chairman and Chief Executive Officer. The
multi-disciplinary project office includes executive management and employees
with expertise from various disciplines including, but not limited to,
information technology, engineering, finance, communications, internal audit,
facilities management, procurement, operations, law and human resources. In
addition, the Company has utilized the expertise of outside consultants to
assist in the implementation of the Year 2000 program in such areas as
business-application system remediation, business-application system
replacement, embedded systems inventory and analysis, business continuity
management planning, and independent verification and validation.
Business-Application Systems
- ----------------------------
In March 1997, the Company completed its assessment of all its
business-application systems. It is resolving Year 2000 issues through
remediation of 18 systems to recognize the turn of the century and the
replacement of 21 systems with new systems that provide additional business
management information and recognize four-digit years. By the end of February
1999, the Company had completed modifications to 17 of the business applications
targeted for remediation. The remaining application will be completed by June
1999. This application represents less than 1% of the code to be remediated.
Thus more than 99% of the applications targeted for remediation have been
remediated, tested and placed back into a Year 2000 operational environment.
21
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
The Company used in-house staff to test all remediated applications and
used a testing procedure commonly known as trace-based testing to test modified
business applications for Year 2000 functionality. This method first captures
current processing steps and relevant data, which are run prior to remediation
(baseline test) and again after remediation (regression test). This process is
intended to identify any business rules that may have changed during the
remediation effort and to confirm that only date processes have been changed.
Once the regression test was successfully completed, the Company used automated
test software tools to perform additional applicable future date tests for each
system.
The Company is also installing an enterprise-wide software system that will
replace 19 business application systems, including its financial, human
resources and supply chain systems. Two other systems will be replaced with
systems not included in the enterprise-wide software initiative. These 21
business applications represent approximately one-half of the business
application software code requiring remediation or replacement. By early May
1999, the Company began using the financial and supply chain modules of the
enterprise-wide software system. The Company is on target to begin using the
human resources modules in early July 1999. The Company currently expects the
replacement of the two other systems will be completed by September 1999.
During the fourth quarter of fiscal year 1998, the Company completed a
comprehensive, prioritized inventory of end-user applications (i.e., PC-based
databases) and is implementing project plans to replace or remediate these
applications, as necessary. It expects to complete replacement or remediation,
including testing, by the end of September 1999.
Embedded Systems
- ----------------
The Company has performed a comprehensive inventory of its embedded systems
at the component level. This inventory identified several hundred components
that were potentially date sensitive. The Company has contacted all
manufacturers of those components that it has identified as critical or
important to its operations. Approximately three percent of the date-sensitive
components that the Company has identified are non-compliant based on
information provided by the manufacturers. All critical components have been
remediated, tested and placed back into production. The remaining components
should be remediated, tested and placed back into production by June 1999.
22
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
Vendor and Supplier Relationships
- ---------------------------------
The Company is contacting in writing or through face-to-face discussions
all vendors and suppliers of products and services that it considers critical or
important to its operation. These contacts include providers of interstate
transportation capacity and storage, natural gas suppliers, financial
institutions and electric, telecommunications and water companies. The Company
has evaluated responses and continues the process of following up with the
vendors and suppliers either through meetings or by letter. The Company will
consider new business relationships with alternate providers of products and
services as necessary and to the extent alternatives are available. However, the
Company recognizes there are no practical alternatives for external
infrastructure such as electric, telecommunications and water services,
suppliers of natural gas and providers of interstate transportation capacity and
storage to deliver natural gas to the Company's distribution system.
Customer Communications
- -----------------------
The Company is communicating with its major interruptible customers to
inform them about the potential vulnerability of embedded boiler and plant
control systems. The Company informed them that they should assess the need to
include potential remediation and/or replacement of these systems as part of
their Year 2000 programs to ensure their ability to switch to an alternate fuel
source, as required by applicable tariffs and contracts and if called on to do
so.
In addition, the Company is communicating its Year 2000 efforts to
customers through individual, community and association presentations through
responses to written inquiries, through brochures explaining our program which
was mailed to customers and through its website.
Year 2000 Risks and Business Continuity Planning
- ------------------------------------------------
With respect to its internal operations, over which the Company has direct
control, the Company believes the most significant potential risks are: (1) its
ability to use electronic devices to control and operate its distribution
system; (2) its ability to render timely bills to its customers; (3) its ability
to enforce tariffs and contracts applicable to interruptible customers; and (4)
its ability to maintain continuous operation of its computer systems including
the enterprise-wide software system the Company is currently implementing. The
Company's Year 2000 program addresses each of these risks, and the remediation
or replacement of these systems is well under way. In the event that any Year
2000-related problems may occur, the Company's continuity plan will outline
alternatives to mitigate the impact of such failures, to the extent possible.
23
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
The Company relies on the suppliers of natural gas and interstate
transportation and storage capacity to deliver natural gas to the Company's
distribution system. External infrastructure, such as electric,
telecommunications and water services, is necessary for the Company's basic
operation as well as the operations of many of its customers. Should any of
these critical vendors fail, the impact of any such failure could become a
significant challenge to the Company's ability to meet the demands of its
customers, to operate its distribution system and to communicate with its
customers. It could also have a material adverse financial impact including, but
not limited to, lost revenues, increased operating costs and claims from
customers related to business interruptions. The Company has no way of ensuring
that those vendors or suppliers mentioned above for which there are no viable
options will be timely Year 2000 compliant.
As part of its normal business practice, the Company maintains plans to
follow during emergency circumstances. These plans are being used as a basis to
build the Company's continuity plan for potential Year 2000-related problems. As
part of its contingency planning effort the Company has performed table-top
exercises to validate this plan. The Company will continue performing table-top
exercises and drills, which are expected to continue through the end of 1999.
The Company maintains and operates a command center that is activated
during emergency circumstances. The Company will manage specific Year 2000
continuity operations from the command center during the millennium change as
well as at other points in time on an as needed basis. The Company has informed
its employees that every employee will be expected to work or be available to
work between December 27, 1999, and January 7, 2000, and between February 22,
2000, and March 7, 2000.
Because of the interconnected nature of potential Year 2000-related
problems, the Company recognizes that effective continuity planning must focus
on both internal and external operations. Therefore, the Company has been in
contact with and will work with federal, state, and local governmental agencies
as well as local organizations and other utilities as it completes its planning
effort.
The Company believes that its work will serve to reduce the risk that its
internal systems will fail for Year 2000 reasons. However, the continuity plan
cannot offset interrupted delivery to the Company's distribution system of
natural gas by the producers of natural gas and providers of interstate
transportation capacity or the impact on operations of failures of electric,
telecommunications and water services.
Independent Verification and Validation
- ---------------------------------------
The Company is currently working with external consultants to verify and
validate the Company's Year 2000 remediation and replacement strategies and
results for both business applications and embedded systems.
To verify and validate the Company's remediation efforts on its business
applications the consultants reviewed all remediated business applications to
determine that the code was remediated correctly. The consultants have reviewed
the compliance statements received from the manufacturers of the critical and
important embedded system components and where possible have developed
strategies and testing procedures to verify the compliance statements. The
Company has independently tested approximately 45% of those critical and
important embedded systems that it has determined it can meaningfully test. To
date the Company
24
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(continued)
has completed its independent verification and validation of all of its critical
systems. The Company is on target to complete its independent verification and
validation of its embedded systems, and the one remaining business application,
by June 1999.
Financial Implications
- ----------------------
To implement its Year 2000 strategies, the Company currently expects to
have generated non-recurring expenses of approximately $12 million over the
three fiscal-year periods ending September 30, 1999 for (1) business-application
systems remediation; (2) embedded systems replacement; (3) end-user applications
remediation and replacement; (4) independent verification and validation; and
(5) certain costs associated with the replacement of certain existing business
systems. The Company will capitalize costs of approximately $41 million incurred
to replace certain existing business-application software systems with new
systems that will be Year 2000 operational and provide additional business
management information.
The following tables reflect the amounts charged to expense and capitalized
for the fiscal years ending September 30, 1997 and 1998 and fiscal year 1999
through March 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Business-application systems remediation, embedded systems replacement, end-user
applications remediation and replacement, and independent verification and
validation
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(millions) 1999 1998 1997 Total
- --------------------------------------------------------------------------------
Expense $ 1 $ 1 $ 1 $ 3
- --------------------------------------------------------------------------------
Capital $ - $ 1 $ - $ 1
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Business-application software systems replacement
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(millions) 1999 1998 1997 Total
- --------------------------------------------------------------------------------
Expense $ 2 $ 4 $ - $ 6
- --------------------------------------------------------------------------------
Capital $ 13 $ 19 $ - $ 32
- --------------------------------------------------------------------------------
</TABLE>
To date the Company has incurred $9 million or approximately 75% of the
estimated costs the Company expects to expense for its Year 2000 strategies.
Additionally, the Company has capitalized $33 million or approximately 80% of
the costs to replace certain existing business-application software systems.
Until the Company has completed further analysis of the impact of the Year 2000
issue on its continuity planning, it is unable to estimate the additional costs,
if any, it may incur as a result of its efforts.
Each of the components of the Company's Year 2000 program is progressing,
and the Company believes it is taking all reasonable steps necessary to be able
to operate successfully through and beyond the turn of the century.
25
<PAGE>
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risks of the Company
- --------------------------------------------------------------------------
The Company has interest rate risk exposure related to long-term debt.
Additionally, the Company's subsidiary, Washington Gas Energy Services, Inc.
(WGES) has price risk exposure related to gas-marketing activities. For
information regarding the Company's exposure related to these risks see Item 7A
in the Company's most recently filed Form 10-K. The Company's risk associated
with interest rates has not materially changed from September 30, 1998. At March
31, 1999, WGES' open position was not material to the Company's financial
position or results of operations.
PART II. OTHER INFORMATION
--------------------------
Item 4.
- -------
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
(a) The annual meeting of stockholders was held on February 24, 1999.
(c) Matters voted upon at the meeting:
The following individuals were elected to the Board of Directors at
the annual meeting on February 24, 1999:
<TABLE>
<CAPTION>
Director Votes in Favor Votes Withheld
-------- -------------- --------------
<S> <C> <C>
Michael D. Barnes 38,649,075 649,804
Fred J. Brinkman 38,793,064 505,815
Daniel J. Callahan, III 38,879,701 419,178
Orlando W. Darden 38,776,731 522,148
James H. DeGraffenreidt, Jr. 38,851,954 446,925
Melvyn J. Estrin 38,883,272 415,607
Philip A. Odeen 38,860,440 438,439
Joseph M. Schepis 38,918,327 380,552
Karen Hastie Williams 38,686,014 612,865
</TABLE>
The following other matters were introduced and voted upon at the
annual meeting:
The Board of Directors recommended that the stockholders ratify the
appointment of Arthur Andersen LLP, independent public accountants, to
audit the books, records and accounts of the Company for fiscal year 1999.
This proposal was approved by a vote of 38,758,711 in favor of the proposal
and 289,897 against. There were 250,271 abstentions.
A stockholder proposed that the Board of Directors take steps to
provide for cumulative voting in the election of Directors. This proposal
was defeated by a vote of 6,560,395 in favor of the proposal and 19,980,282
against. There were 1,642,822 abstentions and 11,115,380 broker non-votes.
26
<PAGE>
PART II. OTHER INFORMATION
--------------------------
(continued)
The Board of Directors recommended that the stockholders ratify the
adoption of the Company's 1999 Incentive Compensation Plan for key
personnel. This proposal was approved by a vote of 28,444,101 in favor of
the proposal and 9,905,301 against. There were 949,477 abstentions.
Item 5.
- -------
Other Information
- -----------------
A. Many in the energy industry, including the Company, believe that the
increasingly deregulated and more competitive energy industry will continue
to lead to industry consolidation, combination, disaggregation and other
strategic alliances and restructuring as energy companies seek to offer a
broader range of energy services to compete more effectively in attracting
and retaining customers. For example, affiliations with other operating
utilities could potentially result in economies and synergies, and
combinations could provide a means to offer customers a more complete range
of energy services. Others are discontinuing operations in certain portions
of the energy industry or divesting portions of their business and
facilities. The Company, from time to time, performs studies, and in some
cases holds discussions regarding utility and energy-related investments
and transactions. The ultimate impact on the Company of any such
investments and transactions that may occur cannot be determined at this
time.
B. On March 31, 1999, the Company's Board of Directors elected Adrian P.
Chapman as Vice President with responsibility for regulatory affairs and
energy acquisition. Mr. Chapman most recently held the position of
Department Head-Regulatory Affairs. Previously, he has held management
positions with the Company in Marketing, Market Planning and Analysis, and
Rates and Regulatory Affairs. Mr. Chapman has been employed by the Company
since 1982.
Also on March 31, 1999, the Company's Board of Directors elected Shelley C.
Jennings as Treasurer. Ms. Jennings most recently held the position of
Department Head-Customer Accounts. Previously, she has served as Manager of
Short-Term Financing, Assistant Treasurer, Director of Accounting
Operations and Area Head-Procurement. Ms. Jennings has been employed by the
Company since 1978.
C. At the Company's annual meeting held on February 24, 1999, shareholders
elected Philip A. Odeen to the Company's Board of Directors. This increases
the size of the Company's Board of Directors from eight to nine members.
Mr. Odeen is Executive Vice President and General Manager of TRW Systems &
Information Technology Group, TRW Inc., a technology, manufacturing and
services company.
D. On May 17, 1999, the Company filed an application for an Incentive Rate
Plan with the Maryland Public Service Commission. The application requested
that the Company's rates be frozen at current levels for five years from
the date of approval. In addition to the rate freeze, the plan proposes an
asymmetrical sharing mechanism for revenues when the Company's earnings on
its Maryland business exceeds a 12% return on equity (ROE), with the
ratepayers receiving 50% and the Company retaining 50% of the excess. The
plan provides for a change in the 12% benchmark return on equity when the
twelve-month average of the 30-year Treasuries moves by more than 100 basis
points in either direction. The plan also allows for adjustments to rates
due to circumstances beyond the Company's control such as changes in tax
laws, legislative mandates, Financial Accounting Standards Board or
Securities and Exchange Commission accounting modifications or new or
increased regulatory requirements. The plan provides the Company
27
<PAGE>
PART II. OTHER INFORMATION
--------------------------
(continued)
with the opportunity to adjust rates, subject to Commission review and
refund, should its Maryland weather-adjusted ROE drop below 8.5%. Finally,
the plan maintains the gas cost mechanisms that provide for the recovery of
actual costs of gas from firm customers. A decision is expected prior to
the fiscal year 2000 heating season.
Item 6.
- -------
Exhibits and Reports on Form 8-K
- --------------------------------
(a) Exhibits Filed Herewith:
<TABLE>
<CAPTION>
Description Page in 10-Q
- ----------------------------------------------- -------------------
<S> <C> <C>
3 Bylaws (as amended February 24, 1999) See separate volume
10 Material Contracts
10.1 Directors' Stock Compensation Plan "
(as amended March 1, 1999)*
10.2 Employment Agreement between the "
Company and the Chairman and Chief
Executive Officer, dated March 15, 1999*
27 Financial Data Schedule "
99.0 Computation of Ratio of "
Earnings to Fixed Charges
99.1 Computation of Ratio of "
Earnings to Fixed Charges and
Preferred Stock Dividends
</TABLE>
<TABLE>
<CAPTION>
Exhibits Incorporated by Reference:
<S> <C>
10 Material Contracts
10.1 1999 Incentive Compensation Plan
filed with the Proxy Statement on
January 25, 1999*
</TABLE>
* Compensatory plan agreement required to be filed pursuant to Item 14 (c) of
Form 10-K.
28
<PAGE>
PART II. OTHER INFORMATION
--------------------------
(continued)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended March
31, 1999.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON GAS LIGHT COMPANY
----------------------------
(Registrant)
Date May 17, 1999 /s/ Robert E. Tuoriniemi
------------ ----------------------------
Controller
(Principal Accounting Officer)
29
Effective 2/24/99
WASHINGTON GAS LIGHT COMPANY BYLAWS
ARTICLE I
Stockholders.
SECTION 1. Annual Meeting. The annual meeting of stockholders of Washington
Gas Light Company (the Company) shall be held on the fourth Wednesday in the
month of February in each year, at 10:00 a.m., at the Grand Hyatt Washington
Hotel, 11th and H Streets, N.W., Washington, D.C., for the purpose of electing
directors and for the transaction of such other business as properly may come
before such meeting. If the day fixed for the annual meeting shall be a legal
holiday in the District of Columbia, such meeting shall be held on the next
succeeding business day.
SECTION 2. Special Meetings. Special meetings of stockholders may be held
upon call by the Chairman of the Board, the President, the Secretary, a majority
of the Board of Directors, or a majority of the Executive Committee, and shall
be called by the Chairman of the Board, the President or Secretary upon the
request in writing of the holders of record of not less than one-tenth of all
the outstanding shares of stock entitled by its terms to vote at such meeting,
at such time and at such place within the District of Columbia as may be fixed
in the call and stated in the notice setting forth such call. Such request by
the stockholders and such notice shall state the purpose of the proposed
meeting.
SECTION 3. Notice of Meetings. Notice of the time, place and purpose of
every meeting of the stockholders, shall, except as otherwise required by law,
be delivered personally or mailed at least ten (10) but not more than one
hundred (100) days prior to the date of such meeting to each stockholder of
record entitled to vote at the meeting at his address as it appears on the
records of the Company. Any meeting may be held without notice if all of the
stockholders entitled to vote thereat are present in person or by proxy at the
meeting, or if notice is waived by those not so present in person or by proxy.
1
<PAGE>
SECTION 4. Quorum. At every meeting of the stockholders, the holders of
record of a majority of the shares entitled to vote at the meeting, represented
in person or by proxy, shall constitute a quorum. The vote of the majority of
such quorum shall be necessary for the transaction of any business, unless
otherwise provided by law or the articles of incorporation. If the meeting
cannot be organized because a quorum has not attended, those present in person
or by proxy may adjourn the meeting from time to time until a quorum is present
when any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 5. Voting. Unless otherwise provided by law or the articles of
incorporation, every stockholder of record entitled to vote at any meeting of
stockholders shall be entitled to one vote for every share of stock standing in
his name on the records of the Company on the record date fixed as provided in
these Bylaws. In the election of directors, all votes shall be cast by ballot
and the persons having the greatest number of votes shall be the directors. On
matters other than election of directors, votes may be cast in such manner as
the Chairman of the meeting may designate.
SECTION 6. Inspectors. The Board of Directors shall annually appoint two or
more persons to act as inspectors or judges at any election of directors or vote
conducted by ballot at any meeting of stockholders. Such inspectors or judges of
election shall take charge of the polls and after the balloting shall make a
certificate of the result of the vote taken. In case of a failure to appoint
inspectors, or in case an inspector shall fail to attend, or refuse or be unable
to serve, the Chairman of the meeting may appoint, or the stockholders may
elect, an inspector or inspectors to act at such meeting. Such inspector or
inspectors shall make a certificate of the result of the vote taken.
2
<PAGE>
SECTION 7. Conduct of Stockholders' Meeting. The following persons, in the
order named, shall be entitled to call each stockholders' meeting to order: (1)
the Chairman of the Board, (2) the President of the Company, (3) a Vice
President, or (4) any person elected by the stockholders. The stockholders shall
have the right to elect a Chairman of the meeting. The Secretary of the Company,
or in his absence any person appointed by the Chairman, shall act as Secretary
of the meeting for organization purposes. The stockholders shall have the right
to elect a secretary of the meeting.
SECTION 8. Record Date. In lieu of closing the stock transfer books, the
Board of Directors, in order to make a determination of stockholders entitled to
notice of or to vote at any meeting, or to receive payment of any dividends or
for any other proper purpose, may fix in advance a date, but not more than fifty
days in advance, as a record date for such determination, and in such case only
stockholders of record on the date so fixed shall be entitled to notice of, and
to vote at, such meeting, or to receive payment of such dividend, or to exercise
such other rights, as the case may be, notwithstanding any transfer of stock on
the books of the Company after such date. If the Board of Directors does not fix
a record date as aforesaid, such date shall be as provided by law.
SECTION 9. Notice of Business. At any meeting of the stockholders, only
such business shall be conducted as shall have been brought before the meeting
(1) by or at the direction of the Board of Directors or (2) by any stockholder
of the Company who is a stockholder of record at the time of giving of the
notice as provided for in this Section 9, who shall be entitled to vote at such
meeting and who complies with the following procedures:
3
<PAGE>
Requirement of Timely Notice.
-----------------------------
For business to be properly brought before a meeting of stockholders
by a stockholder, the business shall be a proper subject of
stockholder action and the stockholder shall have given timely notice
thereof in writing to the Secretary. To be timely, a stockholder's
notice shall be delivered to or mailed and received by the Secretary
at the principal executive office of the Company not less than sixty
(60) days prior to the scheduled date of the meeting (regardless of
any postponements, deferrals or adjournments of the meeting to a later
date); provided, however, if no notice is given and no public
announcement is made to the stockholders regarding the date of the
meeting at least 75 days prior to the meeting, the stockholder's
notice shall be valid if delivered to or mailed and received by the
Secretary at the principal executive office of the Company not less
than fifteen (15) days following the day on which the notice or public
announcement of the date of the meeting was given or made.
Contents of Notice.
-------------------
Such stockholder's notice to the Secretary shall set forth as to each
item of business the stockholder proposes to bring before the meeting
(1) a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting
and, in the event that such business includes a proposal to amend
either the Charter or these Bylaws, the language of the proposed
amendment, (2) the name and address, as they appear on the Company's
books, of the stockholder proposing such business, (3) the class and
number of shares of capital stock of the Company that are beneficially
owned by such stockholder, and (4) any material interest (financial or
other) of such stockholder in such business.
4
<PAGE>
Compliance with Bylaws
------------------------
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a stockholders' meeting except in accordance
with the procedures set forth in this Section 9. The chairman of the
meeting shall, if the facts warrant, determine and declare to the
meeting that the business was not properly brought before the meeting
and in accordance with the provisions of these Bylaws, and if he
should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted at the meeting. Notwithstanding the foregoing provisions of
this Section 9, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set
forth in this Section 9.
Effective Date of Stockholder Business.
------------------------------------------
Notwithstanding anything in these Bylaws to the contrary, no business
brought before a meeting of the stockholders by a stockholder shall
become effective until the final termination of any proceeding which
may have been commenced in any court of competent jurisdiction for an
adjudication of any legal issues incident to determining the validity
of such business and the procedure pursuant to which it was brought
before the stockholders, unless and until such court shall have
determined that such proceedings are not being pursued expeditiously
and in good faith.
5
<PAGE>
ARTICLE II
Board of Directors.
SECTION 1. Number, Powers, Term of Office, Quorum. The Board of Directors
of the Company shall consist of nine persons. The Board of Directors may
exercise all the powers of the Company and do all acts and things which are
proper to be done by the Company which are not by law or by these Bylaws
directed or required to be exercised or done by the stockholders. The members of
the Board of Directors shall be elected at the annual meeting of stockholders
and shall hold office until the next succeeding annual meeting, or until their
successors shall be elected and shall qualify. A majority of the number of
directors fixed by the Bylaws shall constitute a quorum for the transaction of
business. The action of a majority of the directors present at any lawful
meeting at which there is a quorum shall, except as otherwise provided by law or
by these Bylaws, be the action of the Board.
SECTION 2. Election. Except as provided in Section 3 hereof, directors
shall be elected by the stockholders of the Company pursuant to the procedures
enumerated below:
Eligible Persons.
------------------
Only persons who are nominated in accordance with the following
procedures shall be eligible for election by the stockholders as
directors of the Company.
Nominations.
------------
Nominations of persons for election as directors of the Company may be
made at a meeting of stockholders (1) by or at the direction of the
Board of Directors, (2) by any nominating committee or person
appointed by the Board of Directors or (3) by any stockholder of the
Company entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 2.
6
<PAGE>
Nomination by Directors or Nominating Committee.
------------------------------------------------
Nominations made by or at the direction of the Board of Directors or
the nominating committee or person appointed by the Board of Directors
may be made at any time prior to the stockholders' meeting. The Board
of Directors must send notice of nominations to the stockholders
together with the notice of the meeting of the stockholders; provided,
however, if the nominations are made after the notice of the meeting
has been mailed, the Board of Directors must send notice of its
nominations to the stockholders as soon as practicable.
Nomination by Stockholders.
---------------------------
Nominations, other than those made by or at the direction of the Board
of Directors or the nominating committee or person appointed by the
Board of Directors, shall be made pursuant to timely notice in writing
to the Secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received by the Secretary at the principal
executive office of the Company not less than sixty (60) days prior to
the scheduled date of the meeting (regardless of any postponements,
deferrals or adjournments of the meeting to a later date); provided,
however, if no notice is given and no public announcement is made to
the stockholders regarding the date of the meeting at least 75 days
prior to the meeting, the stockholder's notice shall be valid if
delivered to or mailed and received by the Secretary at the principal
executive office of the Company not less than fifteen (15) days
following the day on which the notice or public announcement of the
date of the meeting was given or made.
7
<PAGE>
Contents of Notice.
-------------------
Nominations, other than those made by or at the direction of the Board
of Directors or the nominating committee or person appointed by the
Board of Directors, shall set forth:
(1) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, (a) the name, age, business
address and residential address of the person, (b) the principal
occupation or employment of the person (c) the class and number
of shares of capital stock of the Company that are beneficially
owned by the person, (d) written consent by the person, agreeing
to serve as director if elected, (e) a description of all
arrangements or understandings between the person and the
stockholder regarding the nomination, (f) a description of all
arrangements or understandings between the person and any other
person or persons (naming such persons) regarding the nomination,
(g) all information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors
pursuant to Rule 14a under the Securities Exchange Act of 1934,
as amended, and (h) such other information as the Company may
reasonably request to determine the eligibility of such proposed
nominee to serve as director of the Company; and
(2) as to the stockholder giving the notice, (a) the name, business
address and residential address of the stockholder giving the
notice, (b) the class and number of shares of capital stock of
the Company that are beneficially owned by such stockholder, (c)
a description of all arrangements or understandings between the
stockholder and the nominee regarding the nomination, and (d) a
description of all arrangements or understandings between the
stockholder and any other person or persons (naming such persons)
regarding the nomination.
8
<PAGE>
Compliance with Bylaws.
-----------------------
No person shall be eligible for election by the stockholders as a
director of the Company unless nominated in accordance with the
procedures set forth in this section of the Bylaws. The Chairman of
the Board of Directors shall, if the facts warrant, determine and
declare prior to the meeting of stockholders that the nomination was
not made in accordance with the foregoing procedure, and if he should
so determine, he shall so inform the nominee and the stockholder who
nominated the nominee as soon as practicable and the defective
nomination shall be disregarded.
Effective Date of Election of Director.
---------------------------------------
Notwithstanding anything in these Bylaws to the contrary, no election
of a director nominated by a stockholder shall become effective until
the final termination of any proceeding which may have been commenced
in any court of competent jurisdiction for an adjudication of any
legal issues incident to determining the procedure pursuant to which
the nomination of such director was brought before the stockholders,
unless and until such court shall have determined that such
proceedings are not being pursued expeditiously and in good faith.
SECTION 3. Vacancies. Whenever any vacancy shall occur in the Board of
Directors by any cause other than by reason of an increase in the number of
directors, a majority of the remaining directors, by an affirmative vote at any
lawful meeting may elect a director to fill the vacancy and to hold office until
the next annual election, or until his successor is duly elected and qualified.
SECTION 4. Meetings. Regular meetings of the Board shall be held at the
office of the Company in the District of Columbia at times fixed by resolution
of the Board of Directors. Notice of such meetings need not be given.
9
<PAGE>
Special meetings of the Board may be called by the Chairman of the Board,
the President of the Company, or by any two directors. At least two days' notice
of all special meetings of the Board shall be given to each director personally
by telegraphic or written notice. Any meeting may be held without notice if all
of the directors are present, or if those not present waive notice of the
meeting by telegram or in writing. Special meetings of the Board of Directors
may be held within or without the District of Columbia.
SECTION 5. Committees. The Board of Directors shall, by resolution or
resolutions passed by a majority of the whole Board, designate an Executive
Committee, to consist of the Chief Executive Officer of the Company who may be
the Chairman of the Board, or the President and three additional members, and
three alternates to serve at the call of the Chief Executive Officer in case of
the unavoidable absence of one of the regular members, to be elected from the
Board of Directors. The Executive Committee shall, when the Board is not in
session, have and may exercise all of the authority of the Board of Directors in
the management of the business and affairs of the Company.
The Board of Directors may appoint other committees, standing or special,
from time to time, from among their own number, or otherwise, and confer powers
on such committees, and revoke such powers and terminate the existence of such
committees at its pleasure.
A majority of the members of any such committee shall constitute a quorum
for the purpose of fixing the time and place of its meetings, unless the Board
shall otherwise provide. All action taken by any such committee shall be
reported to the Board at its meeting next succeeding such action.
SECTION 6. Compensation of Directors. The Board of Directors shall fix the
fee to be paid to each director for attendance at any meeting of the Board or of
any committee thereof, and may, in its discretion, authorize payment to
directors of traveling expenses incurred in attending any such meeting.
10
<PAGE>
SECTION 7. Removal. Any directors may be removed from office at any time,
with or without cause, and another be elected in his place, by the vote of the
holders of record of a majority of the outstanding shares of stock of the
Company (of the class or classes by which such director was elected) entitled to
vote thereon, at a special meeting of stockholders called for such purpose.
ARTICLE III
Officers.
SECTION 1. Officers. The officers of the Company shall be elected by the
Board of Directors and shall consist of a Chairman of the Board, a President, a
Secretary, a Treasurer, and one or more Vice Presidents, and such other officers
as the Board from time to time shall elect, with such duties as the Board shall
deem necessary to conduct the business of the Company. Any officer may hold two
or more offices (including those of the Chairman of the Board and President)
except that the offices of President and Secretary may not be held by the same
person. The Chairman of the Board shall be a director; other officers, including
any Vice Chairman and the President, may be, but are not required to be,
Directors.
SECTION 2. Term of Office. Removal. In the absence of a special contract,
all officers shall hold their respective offices for one year or until their
successors shall have been duly elected and qualified, but they or any of them
may be removed from their respective offices on a vote by a majority of the
Board.
11
<PAGE>
SECTION 3. Powers and Duties. The officers of the Company shall have such
powers and duties as generally pertain to their offices, respectively, as well
as such powers and duties as from time to time shall be conferred by the Board
of Directors and/or by the Executive Committee. In the absence of the Chairman
of the Board, if any, the President shall preside at the meetings of the Board
of Directors. In the absence of both the Chairman of the Board and the
President, and provided a quorum is present, the senior member of the Board
present, in terms of service on the Board, shall serve as Chairman pro tem of
the meeting.
SECTION 4. Salaries. The salaries of all executive officers of the Company
shall be determined and fixed by the Board of Directors, or pursuant to such
authority as the Board may from time to time prescribe.
ARTICLE III-A
Indemnification of Directors and Officers.
SECTION 1. With respect to a Company officer, director, or employee, the
Company shall indemnify, and with respect to any other individual the Company
may indemnify, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding (an
"Action"), whether civil, criminal, administrative, arbitrative or investigative
(including an action by or in the right of the Company) by reason of the fact
the person is or was a director, officer, employee, or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by that person
in connection with such Action; except in relation to matters as to which the
person shall be finally adjudged in such Action to have knowingly violated the
criminal law or be liable for willful misconduct in the performance of the
person's duty to the Company. The termination of any Action by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the person was guilty of willful
misconduct.
12
<PAGE>
Any indemnification (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstance because the person has met the applicable standard of conduct set
forth above. In the case of any director, such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such Action; or (2) if such a quorum is not
obtainable, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate)
consisting solely of two or more directors not at the time parties to the
proceeding; or (3) by special legal counsel selected by the Board of Directors
or its committee in the manner prescribed by clause (1) or (2) of this
paragraph, or if such a quorum is not obtainable and such a committee cannot be
designated, by majority vote of the Board of Directors, in which selection
directors who are parties may participate; or (4) by vote of the shareholders,
in which vote shares owned by or voted under the control of directors, officers
and employees who are at the time parties to the Action may not be voted. In the
case of any officer, employee, or agent other than a director, such
determination may be made (i)by the Board of Directors or a committee thereof;
(ii) by the Chairman of the Board of the Company or, if the Chairman is a party
to such Action, the President of the Company, or (iii) such other officer of the
Company, not a party to such Action, as such person specified in clause (i) or
(ii) of this paragraph may designate. Authorization of indemnification and
evaluation as to reasonableness of expenses shall be made in the same manner as
the determination that indemnification is permissible, except that if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those entitled
hereunder to select such legal counsel.
13
<PAGE>
Expenses incurred in defending an Action for which indemnification may be
available hereunder shall be paid by the Company in advance of the final
disposition of such Action as authorized in the manner provided in the preceding
paragraph, subject to execution by the person being indemnified of a written
undertaking to repay such amount if and to the extent that it shall ultimately
be determined by a court that such indemnification by the Company is not
permitted under applicable law.
It is the intention of the Company that the indemnification set forth in
this Section of Article III-A, shall be applied to no less extent than the
maximum indemnification permitted by law. In the event that any right to
indemnification or other right hereunder may be deemed to be unenforceable or
invalid, in whole or in part, such unenforceability or invalidity shall not
affect any other right hereunder, or any right to the extent that is not deemed
to be unenforceable. The indemnification provided herein shall be in addition
to, and not exclusive of, any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, or otherwise, and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and inure to the benefit of such person's heirs, executors,
and administrators.
SECTION 2. In any proceeding brought by a stockholder in the right of the
Company or brought by or on behalf of the stockholders of the Company, no
monetary damages shall be assessed against an officer or director. The liability
of an officer or director shall not be limited as provided in this section if
the officer or director engaged in willful misconduct or a knowing violation of
the criminal law or of any federal or state securities law.
14
<PAGE>
ARTICLE IV
Checks, Notes, Etc.
SECTION 1. All checks and drafts on the Company's bank accounts and all
bills of exchange and promissory notes, and all acceptances, obligations and
other instruments for the payment of money, shall be signed by such officer or
officers, agent or agents, as shall be thereunto authorized from time to time by
the Board of Directors.
SECTION 2. Shares of stock and other interests in other corporations or
associations shall be voted by such officer or officers as the Board of
Directors may designate.
SECTION 3. Except as the Board of Directors shall otherwise provide, all
contracts expressly approved by the Board shall be signed on behalf of the
Company by the Chairman of the Board, the President, or a Vice President.
ARTICLE V
Capital Stock.
SECTION 1. Certificate for shares. The interest of each stockholder of the
Company shall be evidenced by a certificate or certificates for shares of stock
in such form as required by law and as the Board of Directors may from time to
time prescribe. The certificates of stock shall be signed by the President or a
Vice President and the Secretary or an Assistant Secretary and sealed with the
seal of the Company. Such seal may be a facsimile.
Where any such certificate is countersigned by a transfer agent other than
the Company, or an employee of the Company, or is countersigned by a transfer
clerk and is registered by a registrar, the signatures of the President or Vice
President and the Secretary or Assistant Secretary may be facsimiles.
15
<PAGE>
In case any officer who has signed, or whose facsimile signature has been
placed upon such certificate, shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Company with the
same effect as if such officer had not ceased to hold such office at the date of
its issue.
SECTION 2. Transfer of Shares. The shares of stock of the Company shall be
transferable on the books of the Company by the holders thereof in person or by
duly authorized attorney, upon surrender and cancellation of certificates for a
like number of shares, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity of
the signatures as the Company or its agents may reasonably require.
SECTION 3. Lost, Stolen or Destroyed Certificates. No certificate of stock
claimed to have been lost, destroyed or stolen shall be replaced by the Company
with a new certificate of stock until the holder thereof has produced evidence
of such loss, destruction or theft, and has furnished indemnification to the
Company and its agents to such extent and in such manner as the proper officers
or the Board of Directors may from time to time prescribe.
ARTICLE VI
Corporate Records.
SECTION 1. Where Kept. The books, records and papers belonging to the
business of the Company, and the corporate seal, shall be kept at the office of
the Company in the District of Columbia.
16
<PAGE>
SECTION 2. Inspection. Any stockholder or stockholders, who shall have been
such for at least six months, or who shall be the holder or holders of record of
at least five percent of all the outstanding shares of stock of the Company,
desiring to inspect the books or records of the Company, shall present to the
Board of Directors or the Executive Committee an application for such
inspection, specifying the particular books or records to be inspected and the
purpose for which such inspection is desired. If, upon such application, the
Board of Directors or Executive Committee deems such inspection is sought for a
legitimate purpose connected with the interest of the applicant as a stockholder
of the Company, such application shall be granted and a time and place for the
inspection shall be specified. The stock and transfer books of the Company shall
at all times, during business hours, be open to the inspection of stockholders.
The Board of Directors shall have the power from time to time to establish
general regulations conferring upon stockholders such further rights with
respect to inspection of books and records of the Company as the Board shall
deem proper.
ARTICLE VII
Fiscal Year.
The fiscal year of the Company shall begin on the 1st day of October in
each year and shall end on the 30th day of September following.
ARTICLE VIII
Corporate Seal.
The seal of the Company shall be circular in form and there shall be
inscribed thereon -- Washington Gas Light Company -- a Corporation of the
District of Columbia and Virginia -- Originally Chartered by Congress in 1848.
17
<PAGE>
ARTICLE IX
Amendments.
The Board of Directors shall have power to make and alter (unless the
stockholders shall in any particular instance have otherwise prescribed) any
Bylaws of the Company. Such action may be taken at any meeting of the Board by
the affirmative vote of a majority of the total number of directors, provided
that notice of the proposed change shall have been given to all directors prior
to the meeting, or that all of the directors shall be present at the meeting.
Any Bylaws made or altered by the Board of Directors may be altered or repealed
at any time by the stockholders.
18
<PAGE>
CERTIFICATE OF SECRETARY
OF
WASHINGTON GAS LIGHT COMPANY
I, DOUGLAS V. POPE, Secretary of WASHINGTON GAS LIGHT COMPANY, DO HEREBY
CERTIFY, that attached is a currently effective copy of the Bylaws of Washington
Gas Light Company.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Washington
Gas Light Company this 24th day of February, 1999.
/s/ Douglas V. Pope
------------------------
Secretary
19
WASHINGTON GAS LIGHT COMPANY
DIRECTORS' STOCK COMPENSATION PLAN
As Adopted on October 25, 1995
As Amended January 1, 1998
As Amended March 1, 1999
------------------------
<PAGE>
WASHINGTON GAS LIGHT COMPANY
DIRECTORS' STOCK COMPENSATION PLAN
ARTICLE I
DEFINITIONS
-----------
1.01 Affiliate means any "subsidiary" or "parent" corporation of the Company (as
such terms are defined in section 424 of the Code).
1.02 Board means the Board of Directors of the Company.
1.03 Code means the Internal Revenue Code of 1986, as amended.
1.04 Common Stock means the common stock of the Company.
1.05 Company means Washington Gas Light Company.
1.06 Date of Award means each January 1 during the term of the Plan.
1.07 Fair Market Value means, on any given date, the average of the high and low
prices of a share of Common Stock as reported on the New York Stock
Exchange or, if the Common Stock was not traded on such day, then on the
next preceding day that the Common Stock was traded on such exchange, all
as reported by the Wall Street Journal.
1.08 Participant means a member of the Board who satisfies the requirements of
Article IV. 1.09 Plan means the Washington Gas Light Company Directors'
Stock Compensation Plan.
1
<PAGE>
ARTICLE II
PURPOSES
--------
The Plan is intended to assist the Company in promoting a greater identity
of interest between the Company's non-employee directors and its shareholders,
and to assist the Company in attracting and retaining non-employee directors by
affording Participants an opportunity to share in the future success of the
Company.
ARTICLE III
ADMINISTRATION
--------------
The Plan shall be administered by the Company's Vice President of Human
Resources in a manner that is consistent with the provisions of this Plan. The
Company's Vice President of Human Resources shall not be liable for any act done
in good faith with respect to this Plan. All expenses of administering this Plan
shall be borne by the Company and its Affiliates.
ARTICLE IV
ELIGIBILITY
-----------
Each member of the Board who is not an employee of the Company or an
Affiliate, and who has not been employed by the Company or one of its Affiliates
during the twelve months preceding the Date of Award will participate in the
Plan during his or her service on the Board.
2
<PAGE>
ARTICLE V
AWARDS
------
Shares of Common Stock will be awarded to each Participant as of each Date
of Award. Subject to Article VIII's limitation on the number of shares of Common
Stock which may be issued under the Plan, on each Date of Award each Participant
will be awarded 800 shares of common stock.
ARTICLE VI
VESTING OF SHARES
-----------------
The shares of Common Stock awarded under the Plan will be immediately
vested and nonforfeitable. Subject to the requirements of Article IX, the shares
awarded under the Plan may be sold or transferred by the Participant at any
time.
ARTICLE VII
SHAREHOLDER RIGHTS
------------------
Participants will have all the rights of shareholders with respect to
shares awarded under the Plan. Accordingly, Participants will be entitled to
vote the shares and receive dividends.
ARTICLE VIII
SHARES AUTHORIZED
-----------------
Up to forty thousand shares of Common Stock may be awarded under the Plan.
If the Company effects one or more stock dividends, stock split-ups,
subdivisions, reclassifications, or consolidations of shares, or other similar
changes in capitalization after the Plan's adoption by the Board, the maximum
number of shares that may be awarded under the Plan shall be proportionately
adjusted.
3
<PAGE>
ARTICLE IX
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
-----------------------------------------------------
No Common Stock shall be awarded and no certificates for shares of Common
Stock shall be delivered under the Plan except in compliance with all applicable
federal and state laws and regulations, any listing agreement to which the
Company is a party, and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company shall have the right to rely on the
opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock issued under the Plan may bear such legends and statements
as the Company may deem advisable to assure compliance with federal and state
law and regulations. No Common Stock shall be awarded and no certificates for
shares of Common Stock shall be delivered until the Company has obtained such
consent or approval as it may deem advisable from regulatory bodies having
jurisdiction over such matters.
4
<PAGE>
ARTICLE X
GENERAL PROVISIONS
---------------
10.01 Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under the Plan. Any liability of the
Company to any person with respect to any grant under the Plan shall be based
solely upon any contractual obligations that may be created pursuant to the
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company. 10.02 Rules of
Construction. Headings are given to the articles and sections of the Plan solely
as a convenience to facilitate reference. The references to any statute,
regulation, or other property of law shall be construed to refer to any
amendment to or successor of such provisions of law.
ARTICLE XI
AMENDMENT OF PLAN
-------------------
The Board may amend the Plan from time to time. No amendment may become
effective until shareholder approval is obtained if such approval is required by
any federal or state law or regulation or the rules of any stock exchange on
which the Common Stock may be listed, or if the Board in its discretion
determines that the obtaining of such shareholder approval is for any reason
advisable. No amendment shall, without a Participant's consent, adversely affect
any rights of such Participant under any Award outstanding at the time such
amendment is made.
5
<PAGE>
ARTICLE XII
DURATION OF PLAN
----------------
The final award under the Plan will be made as of the Date of Award in
2006. The Board may terminate the Plan sooner by appropriate action. The Plan
will terminate automatically, without action by the Board, if there are
insufficient shares available to make the awards described in the Plan.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
----------------------
The Plan will become effective once it is adopted by the Board and approved
by a majority of the votes cast at a duly held shareholders' meeting at which a
quorum representing a majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan. No awards will be made under
the Plan prior to approval of the Plan, by the Company's shareholders.
6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and among
Washington Gas Light Company (the "Company") and James H. DeGraffenreidt, Jr.
(the "Executive"), as of the 15th day of March, 1999.
RECITALS
--------
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
AGREEMENT
---------
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
--------------------
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section l(b)) on which a Change of Control
(as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated within twelve months
prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (ii) otherwise arose
in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the Effective Date.
2. Change of Control.
------------------
For the purpose of this Agreement, a "Change of Control" shall mean:
1
<PAGE>
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
30% or more of either (i) the then-outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then- outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or any
2
<PAGE>
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 30% or more of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such Business Combination,
or the combined voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period.
------------------
The Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the second anniversary of such date (the
"Employment Period").
4. Terms of Employment.
--------------------
(a) Position and Duties.
--------------------
(i) During the Employment Period, (A) the Executive's position,
duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised
and assigned at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35
miles from such location; and
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal
investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of the
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
3
<PAGE>
(b) Compensation.
-------------
(i) Base Salary.
------------
During the Employment Period, the Executive shall receive an
annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the 12-month period immediately
preceding the month in which the Effective Date occurs. As used
herein, "Annual Base Salary" will include all wages or salary paid to
the Executive and will be calculated before any salary reduction or
deferrals, including but not limited to reductions made pursuant to
Sections 125 and 401(k) of the Internal Revenue Code of 1986, as
amended. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Incentive.
-----------------
In addition to Annual Base Salary, the Executive shall have the
opportunity to earn annual incentive compensation (the "Annual
Incentive") for each fiscal year ending during the Employment Period,
at least equal to that available to other peer executives of the
Company and its affiliated companies. Each such Annual Incentive shall
be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Incentive is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Incentive. In the event the Executive is terminated during the
Employment Period, the Executive's Annual Incentive for the most
recent year shall be prorated for the portion of that year that the
Executive worked in the manner set forth in Section 6(a)(i)(A)(2).
(iii) Incentive, Savings and Retirement Plans.
----------------------------------------
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices,
policies and programs applicable generally to other peer executives of
the Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period
immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective
Date to other peer executives of the Company and its affiliated
companies.
4
<PAGE>
(iv) Welfare Benefit Plans.
----------------------
During the Employment Period, the Executive and/or the
Executive's beneficiaries, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect
for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
(v) Expenses.
---------
During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits.
----------------
During the Employment Period, the Executive shall be entitled to
fringe benefits, including, without limitation, payment of club dues,
and, if applicable, use of an automobile and payment of related
expenses, in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office.
-------
During the Employment Period, the Executive shall be entitled to
an office at least equal to that of other peer executives of the
Company and its affiliated companies.
(viii) Vacation.
---------
During the Employment Period, the Executive shall be entitled to
paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
5
<PAGE>
5. Termination of Employment.
--------------------------
(a) Death or Disability.
---------------------
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after
such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause.
------
The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such
failure from incapacity due to physical or mental illness),
after a written demand for substantial performance is
delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good
faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a copy of a
6
<PAGE>
resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board), finding that, in
the good faith opinion of the Board, the Executive is guilty of the
conduct described in subparagraph (i) or (ii) above, and specifying
the particulars thereof in detail.
(c) Good Reason.
-------------
The Executive's employment may be terminated by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any material respect with the Executive's position as
contemplated by Section 4(a) of this Agreement, excluding
for this purpose an isolated, insubstantial and inadvertent
action which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii)if there is a Change of Control, merger, acquisition or
other similar affiliation with another entity and Executive
does not continue as the Chief Executive Officer of the most
senior resulting entity;
(iv) failure by the Company to reimburse the Executive for
expenses related to a required relocation;
(v) any required relocation of the Executive more than thirty
five miles from Washington, D.C., other than on a temporary
basis (less than two months);
(vi) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(vii)any failure by the Company to comply with and satisfy
Section 11 (c) of this Agreement.
(d) Notice of Termination.
----------------------
Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
7
<PAGE>
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination.
--------------------
"Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination During Employment Period.
------------------------------------------------------------------------
(a) Good Reason, Other Than for Cause, Death or Disability.
-----------------------------------------------------------
If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Target
Annual Incentive (as defined in the Executive
Compensation Plan of the Company) in the fiscal year of
the Executive's Termination and (y) a fraction, the
numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not therefore
paid (the sum of the amounts described in clauses (1),
(2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. Subject to the provisions of Section 9, the amount
equal to three times the Executive's Average Pay. For
purposes of this Agreement, Average Pay shall mean the
sum of (1) the Executive's Annual Base Salary, plus
8
<PAGE>
(2) the Executive's average Annual Incentive actually
earned for the last three full fiscal years.
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company
shall continue benefits to the Executive and/or the
Executive's beneficiaries at least equal to those which
would have been provided to them in accordance with the
plans, programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Executive's employment had
not been terminated or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable
period of eligibility. After this three-year term, the
Executive shall immediately be eligible for COBRA benefits.
For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and
to have retired on the last day of such period;
(iii)to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and
benefits shall be hereinafter referred to as the "Other
Benefits");
(iv) The Company shall credit the Executive with up to an
additional three years of benefit service under the
Company's Supplemental Executive Retirement Plan (the
"SERP"), but in no event shall such additional years of
benefit service result in total years of benefit service
exceeding the maximum under the SERP;
(v) the Company shall, at its sole expense as incurred, provide
the Executive with reasonable outplacement services the
scope and provider of which shall be selected by the
Executive in his sole discretion; and
(vi) immediately prior to termination of the Executive's
employment, all restricted stock grants made to the
Executive which are outstanding at the time of such event
shall be accelerated and vest.
9
<PAGE>
(b) Death.
------
If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate
or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b)
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peers and their beneficiaries at any time
during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with
respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability.
-----------
If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term
"Other Benefits" as utilized in this Section 6(c) shall include, and
the Executive shall be entitled after the Disability Effective Date to
receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating
to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable
to the Executive and/or the Executive's beneficiaries, as in effect at
any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
(d) Cause: Other than for Good Reason.
----------------------------------
If the Executive's employment shall be terminated for Cause
during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay
to the Executive (x) the Executive's Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case to the
extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations and
the timely payment or provision of Other Benefits. In such case, all
Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
10
<PAGE>
7. Nonexclusivity of Rights.
--------------------------
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement.
-----------------
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment.
9. Certain Additional Payments by the Company.
--------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined
that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment") would be subject to the excise tax
imposed pursuant to Sections 280G and/or 4999 of the Code or any
interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to
choose whether to receive (i) the amount of such Payment, or (ii)
a smaller amount equal to one dollar less than the maximum amount
that Executive may receive without having such payment be treated
as an excess parachute payment under Section 280G of the Code or
that may otherwise give rise to Excise Tax (the "Reduced
Amount"), or (iii) with respect to the payment in Section
6(a)(i)(B), an amount equal to (A) 2.0 times Average Pay, plus
(B) an amount of cash that enables the Executive to pay the
Excise tax on such amount, plus (C) an amount that enables the
Executive to pay all additional Excise Taxes that may arise due
to payments to Executive that are made for the purpose of paying
Excise Taxes.
11
<PAGE>
(b) In order to choose among the benefits described above, the
calculation of such amounts shall be computed by an accounting
firm designated by the Company (the "Accounting Firm"). Such
Accounting Firm shall provide detailed supporting calculations
both to the Company and to the Executive within 15 days of the
Date of Termination. In the event the Executive chooses the
benefit described in Section 9(a)(ii) above, the Executive shall
determine which benefits shall be eliminated or reduced
consistent with the requirements of Section 9(a)(ii). If the
Executive does not make such determination within ten days of the
receipt of the calculations made by the Accounting Firm, the
Company shall elect which and how much of the benefits shall be
eliminated or reduced consistent with the requirements of this
Section 9 and shall notify the Executive promptly of such
election. Within five days thereafter, the Company shall pay to
or distribute to or for the benefit of the Executive such amounts
as are then due to the Executive under this Agreement.
(c) In the event the Internal Revenue Service ("IRS") subsequently
challenges the Excise Tax computation herein described, then the
Executive shall notify the Company in writing of any claim by the
IRS that, if successful, would require the payment by the
Executive of additional Excise Taxes. Such notification shall be
given no later than ten days after the Executive receives written
notice of such claim. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date
on which the Executive gives notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim and that it will bear the costs
and provide the indemnification as required by this sentence, the
Executive shall cooperate with the Company in good faith in order
effectively to contest such claim and permit the Company to
participate in any proceedings relating to such claim. In the
event a final determination is made with respect to the IRS
claim, or in the event the Company chooses not to further
challenge such claim, then the Company shall reimburse the
Executive for the additional Excise Tax owed to the IRS in excess
of the Excise Tax calculated by the Accounting Firm. The Company
shall also reimburse the Executive for all interest and penalties
related to the underpayment of such Excise Tax. The Company will
also reimburse the Executive for all federal and state income tax
and employment taxes thereon.
10. Confidential Information.
--------------------------
The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
12
<PAGE>
Executive shall not, without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors & Assigns.
----------------------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor or any party that acquires
control of the Company (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company or any party that
acquires control of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous.
--------------
(a) Governing Law; Headings; Amendment.
--------------------------------------
This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia, without reference
to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) Notices.
--------
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
--------------------
at the address for Executive that is on file with the Company
If to the Company:
------------------
Washington Gas Light Company
1100 H Street, N.W.
Washington, D.C. 20080
ATTN: General Counsel
13
<PAGE>
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) Severability.
-------------
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) Withholding.
------------
The Company may withhold from any amounts payable under this
Agreement such federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) Waiver.
-------
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver
of such provision or right or any other provision or right under
this Agreement.
(f) At Will Employment.
-------------------
The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by
the Company is "at will" and, subject to Section l(a) hereof,
prior to the Effective Date, the Executive's employment and/or
this Agreement may be terminated by either the Executive or the
Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede
any other agreement between the parties with respect to the
subject matter hereof.
14
<PAGE>
(g) Arbitration.
------------
In the event of any dispute between the parties regarding this
Agreement, the parties shall submit to binding arbitration,
conducted in Washington, DC or in Virginia within 25 miles of
Washington, DC. The arbitration shall be conducted pursuant to
the rules of the American Arbitration Association. Each of the
parties shall select one arbitrator, who shall not be related to,
affiliated with or employed by that party. The two arbitrators
shall, in turn, select a third arbitrator. The decision of any
two of the arbitrators shall be binding upon the parties, and
may, if necessary, be reduced to judgment in any court of
competent jurisdiction. Notwithstanding the foregoing, the
parties expressly agree that nothing herein in any way precludes
Company from seeking injunctive relief or declaratory judgment
through a court of competent jurisdiction with respect to a
breach (or an alleged breach) of any covenant not to compete or
of any confidentiality covenant contained in this Agreement. In
the event the Executive pursues arbitration pursuant to this
Section herein, the Executive shall be compensated up to $150,000
in legal costs.
(h) Pooling of Interests Accounting.
--------------------------------
In the event any provision of this Agreement would prevent the
use of pooling of interests accounting in a corporate transaction
involving the Company and such transaction is contingent upon
pooling of interests accounting, then that provision shall be
deemed amended or revoked to the extent required to preserve such
pooling of interests. The Executive will, upon advice from the
Company, take (or refrain from taking, as appropriate) all
actions necessary or desirable to ensure that pooling of
interests accounting is available.
15
<PAGE>
(i) Effect of Prior Agreements.
---------------------------
This Agreement contains the entire understanding between the
parties hereto and supersedes the Employment Agreement dated May
19, 1997 between the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
/s/ James H. DeGraffenreidt, Jr.
----------------------------------
Name: James H. DeGraffenreidt, Jr.
WASHINGTON GAS LIGHT COMPANY
/s/ Daniel J. Callahan, III
----------------------------------
By:
Title: Chairman,
Human Resources Committee
16
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTERIM CONSOLIDATED INCOME STATEMENTS, BALANCE SHEETS AND STATEMENTS OF CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,359,511
<OTHER-PROPERTY-AND-INVEST> 2,918
<TOTAL-CURRENT-ASSETS> 302,236
<TOTAL-DEFERRED-CHARGES> 110,130
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,774,795
<COMMON> 46,474
<CAPITAL-SURPLUS-PAID-IN> 364,586
<RETAINED-EARNINGS> 319,392
<TOTAL-COMMON-STOCKHOLDERS-EQ> 730,452
0
28,423
<LONG-TERM-DEBT-NET> 453,093 <F1>
<SHORT-TERM-NOTES> 2,405 <F2>
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 14,200 <F2>
<LONG-TERM-DEBT-CURRENT-PORT> 47,020
0
<CAPITAL-LEASE-OBLIGATIONS> 1,042
<LEASES-CURRENT> 1,042
<OTHER-ITEMS-CAPITAL-AND-LIAB> 498,160
<TOT-CAPITALIZATION-AND-LIAB> 1,774,795
<GROSS-OPERATING-REVENUE> 690,337
<INCOME-TAX-EXPENSE> 52,122
<OTHER-OPERATING-EXPENSES> 530,059
<TOTAL-OPERATING-EXPENSES> 582,181
<OPERATING-INCOME-LOSS> 108,156
<OTHER-INCOME-NET> 761
<INCOME-BEFORE-INTEREST-EXPEN> 108,917
<TOTAL-INTEREST-EXPENSE> 19,158
<NET-INCOME> 89,759
666
<EARNINGS-AVAILABLE-FOR-COMM> 89,093
<COMMON-STOCK-DIVIDENDS> 28,016
<TOTAL-INTEREST-ON-BONDS> 19,158 <F3>
<CASH-FLOW-OPERATIONS> 140,777
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<FN>
<F1> REPRESENTS TOTAL LONG-TERM DEBT INCLUDING $450,700 IN UNSECURED
MEDIUM-TERM NOTES, $3,109 IN OTHER LONG-TERM DEBT AND ($716) IN UNAMORTIZED
PREMIUM AND DISCOUNT-NET.
<F2> TOTAL OF SHORT-TERM NOTES PAYABLE AND COMMERCIAL PAPER TIES TO BALANCE
SHEET CAPTION ENTITLED NOTES PAYABLE.
<F3> REPRESENTS TOTAL INTEREST EXPENSE, PER STATEMENTS OF INCOME.
</FN>
</TABLE>
EXHIBIT 99.0
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES
---------------------------------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Twelve Months Ended March 31, 1999
----------------------------------
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
FIXED CHARGES:
Interest Expense $ 38,039
Amortization of Debt Premium, Discount and Expense 426
Interest Component of Rentals 12
-----------
Total Fixed Charges $ 38,477
===========
EARNINGS:
Net Income $ 66,535
Add:
Income Taxes Applicable to Operating Income 37,669
Income Taxes Applicable to Other Income - Net 2,242
Total Fixed Charges 38,477
-----------
Total Earnings $ 144,923
===========
Ratio of Earnings to Fixed Charges 3.8
===========
</TABLE>
EXHIBIT 99.1
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES
---------------------------------------------
Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
-----------------------------------------------------
Twelve Months Ended March 31, 1999
----------------------------------
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
PRE-TAX PREFERRED STOCK DIVIDENDS:
Preferred Dividends $ 1,331
Effective Income Tax Rate 0.3749
Complement of Effective Income Tax Rate (1 - Tax Rate) 0.6251
Pre-Tax Preferred Dividends $ 2,129
=========
FIXED CHARGES:
Interest Expense $ 38,039
Amortization of Debt Premium, Discount and Expense 426
Interest Component of Rentals 12
---------
Total Fixed Charges 38,477
Pre-tax Preferred Dividends 2,129
---------
Total $ 40,606
=========
EARNINGS:
Net Income $ 66,535
Add:
Income Taxes Applicable to Operating Income 37,669
Income Taxes Applicable to Other Income - Net 2,242
Total Fixed Charges 40,606
---------
Total Earnings $ 147,052
=========
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends 3.6
=========
</TABLE>
